Marginal Tax Rates

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Tax Revenues Drop Significantly

The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation's plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.

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Exxon Pays Taxes

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Tax Burden: Oil Companies v Bottom 50% of Taxpayers

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Businesses Avoiding Taxes

Nearly two-thirds of U.S. companies and 68% of foreign corporations do not pay federal income taxes, according to a congressional report released Tuesday.

The Government Accountability Office (GAO) examined samples of corporate tax returns filed between 1998 and 2005. In that time period, an annual average of 1.3 million U.S. companies and 39,000 foreign companies doing business in the United States paid no income taxes - despite having a combined $2.5 trillion in revenue...

U.S. politicians disagree about how much income tax the government should levy on corporations. Currently the rate is 35%, but most foreign governments have set their rates below the U.S. level.
"The U.S. corporate tax rate stayed the same while foreign countries have drifted down, which increases the incentive for companies to report income in other countries," said Toder. "If the U.S. drops the rate to 30% but closes other tax loopholes, that may ultimately generate more tax revenue for the government."

read the CNN story

My Thoughts: Good for them and good for consumers.

Cartoon: Windfall Profits

Exxon: Record Profits and Taxes

chart from Carpe Diem

From 2003 to 2007, Exxon's earnings grew by 89%, while income taxes grew by 170%. Much of that growth was overseas...

Defenders of oil company profits also point out that their profit margin, at around 8%, is slightly below average for S&P 500 companies, and far below the 20%-plus margins seen at companies such as Microsoft or Pfizer.

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Greg Mankiw: The Problem with the Corporate Tax

Lost in this hubbub, however, is a bigger idea that Mr. McCain and his economic team have put forward: a cut in the corporate tax rate, to 25 percent from 35 percent. It is perhaps the best simple recipe for promoting long-run growth in American living standards.

Cutting corporate taxes is not the kind of idea that normally pops up in presidential campaigns. After all, voters aren’t corporations. Why promise goodies for those who can’t put you in office?

In fact, a corporate rate cut would help a lot of voters, though they might not know it. The most basic lesson about corporate taxes is this: A corporation is not really a taxpayer at all. It is more like a tax collector.

The ultimate payers of the corporate tax are those individuals who have some stake in the company on which the tax is levied. If you own corporate equities, if you work for a corporation or if you buy goods and services from a corporation, you pay part of the corporate income tax. The corporate tax leads to lower returns on capital, lower wages or higher prices — and, most likely, a combination of all three.

A cut in the corporate tax as Mr. McCain proposes would initially give a boost to after-tax profits and stock prices, but the results would not end there. A stronger stock market would lead to more capital investment. More investment would lead to greater productivity. Greater productivity would lead to higher wages for workers and lower prices for customers.

read the entire essay

Corporate v. Individual Taxes as Share of National Income

Corporate income is taxed twice--once as corporate income and once as either capital gains or dividend income, which are both counted under personal taxes. Also, economists teach that corporations are often able to pass on much of their tax burden to employees and/or customers. It could even be that relatively high corporate tax rates in the U.S. are incentivizing corporations to find all sorts of sneaky ways to run their profits through lower-tax jurisdictions abroad--that is, we're on the wrong side of the Laffer curve and we could squeeze more tax revenue out of corporations if we lowered the rates. And in the end, corporations are just legal constructs owned and operated by people who, for the most part, pay taxes.

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